Date: January 15, 2024
- The STI gained 7 points or 0.2% at 3,191.72
- All 3 US equity indices managed rises for the week despite inflation data
- US consumer price index rose more-than-expected 3.4% in December
- Probability that the Fed will keep rates steady in Feb is 95.3%
- Maybank’s 2024 STI target lowered from 3,629 to 3,290
- Yanlord issued a profit warning
- SGX sent Tee International notice of delisting
- Novo Tellus to dissolve
- The STI generated a 4.7% total return in 2023: SGX Research
A quiet week with the banks and Singtel driving the STI
The Straits Times Index’s indifferent start to the new year continued last week, with a 7 points or 0.2% gain at 3,191.72. As always, traders took their cues from Wall Street, where anxiety over when the Fed might start cutting rates was the main driving force.
With the index’s movements largely dictated by rises and falls in the banks and Singtel, average daily volume traded was a weak S$844m, ranging from Monday’s week-low of S$752m to Friday’s week-high of S$964.25m.
US inflation still a problem but major indices all rose for the week
The consumer price index climbed 3.4% year over year last month, an acceleration from the 3.1% pace logged in November, according to data released Thursday by the Bureau of Labor Statistics.
While that is down significantly from the 6.5% recorded in December 2022, last month’s number was a surprise. The consensus call among economists surveyed by FactSet pointed to a gain of 3.2%.
While the pace of headline inflation was on the rise in December, core CPI—a metric that excludes the more volatile food and energy indexes and is generally considered a better gauge of underlying trends—continued to decline.
Core CPI growth slowed to 3.9 % year over year in December from 4% in November, a welcome decline that still fell short of expectations. Economists had forecast that last month’s core CPI rate would slow to 3.8% year over year.
The data provided evidence the Federal Reserve’s fight to bring back price stability isn’t over and could spoil investors’ hopes for early rate cuts.
“The headline number came in hotter than expected and core CPI came in line with expectations,” Alexandra Wilson-Elizondo, co-chief investment officer for multi-asset solutions at Goldman Sachs Asset Management was quoted as saying by US newspaper Barron’s. “This print should challenge the markets’ expectations of rate cut timing.”
Despite the caution, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite all posted weekly gains, marking a reversal from the previous week’s market action.
The Dow rose 0.3% last week, after marking its second-highest close on Thursday. The S&P, meanwhile, gained 1.8%, after touching its record close during intraday trading on Friday.
The Nasdaq, up 3.1% this week, marked its largest one-week gain since November.
Probability of no rate cut on Feb is 95.3%
As of Friday, the futures market was pricing in a probability of 95.3% that the US Federal Reserve will keep rates unchanged next month.
The yield on the 10-year Treasury note ticked lower by about 3 basis points to 3.946%. It had been hovering around the 4% mark for much of the week. The 2-year Treasury yield declined nearly 11 basis points to trade at 4.155%.
Maybank’s 2024 STI target lowered from 3,629 to 3,290
In its 2024 Singapore Strategy report released last week, Maybank said four major, multi-year themes could enhance Singapore’s regional hub status going forward which should drive earnings higher.
“First, expect corporate and government-linked company (GLC) restructurings to accelerate as they look to squeeze better ROICs (return on invested capital). Second, Singapore could benefit from bigger sustainable investment allocations given better ESG (environmental, social and governance) risk scores. Third, the volume of accretive regional M&A (mergers and acquisitions) may rise’’.
“Local firms could seek to supplement slow growth at home with faster growth outside, catalysed by a strong SGD, cheap regional valuations and ASEAN supply chain relocation opportunities. Finally, an early mover advantage in tech investments and a comprehensive national AI (artificial intelligence) policy should drive productivity and revenue enhancements across multiple sectors’’.
However, the broker said although earnings risk is on the upside, it is cautious on valuations because of a slowing China and the uncertainty over the state of the US economy.
“We have lowered our 12-month STI target to 3,290 from 3,629. Our 50:50 weighting of bottom-up fundamentals and target PE/PB (price-earnings/price-book) methodology is unchanged. For themes, we like DBS, ComfortDelGro, Dyna-Mac, SingTel, and laggards CLAR (CapitaLand Ascendas REIT), CICT (CapitaLand Integrated Commercial Trust), Frencken, Genting Singapore, LREIT (Lendlease Global Commercial REIT) and Venture’’ said Maybank.
Yanlord issued a profit warning
Chinese property developer Yanlord Land Group expects to record net losses for the six months as well as full year ended Dec 31, 2023. This was announced a few days after Yanlord announced a 52.5% year-on-year fall in its total contracted pre-sales for FY2023 to 32.4 billion yuan (S$6 billion).
Yanlord said that the probable net loss is primarily attributable to the provision for impairment losses on the group’s certain development properties in the country, as a result of the lower selling prices due to the softer general market demand.
SGX sent Tee International notice of delisting
Engineering and construction firm Tee International has received a notification of delisting from the Singapore Exchange (SGX) whilst its application for a further extension of time until Mar 31 to submit its revised trading resumption proposal was rejected by SGX.
This is on the basis that the company has been unable to provide “substantive details of its proposed acquisition and substantiation” to demonstrate that its plans, including its proposed acquisition, would enable it to operate as a going concern and have trading resume, according to SGX.
n the delisting notice served to Tee international by the Singapore Exchange Regulation, SGX noted that trading in the company’s shares has been suspended since Jun 18, 2021.
It pointed out that the company had not submitted a definitive resumption proposal that will allow trading of its securities to resume within 12 months of the date of its suspension; neither had it done so by the extended timeline of Apr 30, 2023.
Novo Tellus to dissolve
Novo Tellus Alpha Acquisition (NTAA) will dissolve and not conclude a business combination after “careful consideration and thorough evaluation of potential targets”, and taking into consideration current market conditions.
The special purpose acquisition company (SPAC) said that it will announce details of the process to redeem its issued outstanding Class A shares in due course.
There will be no redemption rights with respect to founder shares, nor redemption rights or liquidation distributions that would come with the company’s warrants, including private placement warrants.
Singapore-listed SPACs including NTAA have two years to announce their potential business combination, which is also known as a de-SPAC transaction. If the SPAC is unable to find a suitable acquisition target, it is required to dissolve and return the funds to investors.
In late December 2023, Tikehau Capital’s Pegasus Asia also announced it would not de-SPAC “after considering macroeconomic and market conditions”.
Both NTAA and Pegasus Asia’s announcements confirmed an earlier media report that these two Singapore Exchange-listed SPAC were to be dissolved.
The only SPAC to conclude a merger was Vertex Technology Acquisition Company (VTAC) which took over Taiwanese live-streaming app 17Live last month.
How the STI performed in 2023
In a 3 Jan Market Update, SGX Research said in 2023 the STI generated a 4.7% total return, in-line with the FTSE ASEAN Extended 60 Index’s 3.7% total return in SGD terms.
“This brought the STI total return since the end of 2019 to 18.5%, which has doubled the total return of the FTSE Asia Pacific Ex-Japan Index at 9.1%’’ said SGX Research, thanks largely to the three banks, which have averaged 43.6% total returns over the four years.
Whilst the 30 STI constituents booked S$3.6 billion of net institutional outflow and S$2 billion of net retail inflow last year, Keppel and Sembcorp Industries led the index in 2023, with both stocks generating just over 60% total returns for the year.
“Both stocks have continued to pursue renewable energy solutions. Keppel, together with Mitsubishi Power and Jurong Engineering consortium, is developing Singapore’s first hydrogen ready cogeneration plant. Sembcorp’s recent developments include the 285 MWh Sembcorp Energy Storage System and the upcoming 600MW hydrogen-ready power plant expected to be operational in 2026. Meanwhile, the two least performing STI stocks in 2023 included HongkongLand and ThaiBev which generated 21% declines in total return’’.
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